Asset Pricing with Idiosyncratic Risk and Overlapping Generations

@inproceedings{Storesletten2000AssetPW,
  title={Asset Pricing with Idiosyncratic Risk and Overlapping Generations},
  author={Kjetil Storesletten and Chris I. Telmer and Amir Yaron},
  year={2000}
}
Constantinides and Duffie (1996) show that for idiosynratic risk to matter for asset pricing the shocks must (i) be highly persistent and (ii) become more volatile during economic contractions. We show that data from the Panel Study on Income Dynamics (PSID) are consistent with these requirements. Our results are based on econometric methods which incorporate macroeconomic information going beyond the time horizon of the PSID, dating back to 1910. We go on to argue that life-cycles effects are… CONTINUE READING

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